Why EUR/USD is falling on the background of a Greek

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EUR/USD extended the losses seen on Friday and trades around 1.1070, above support at 1.10.

The euro is still digesting the approval of the third Greek bailout on Friday and as the Chinese devaluation crisis is not shaking the boat too much. Here is what’s moving the single currency.

Greece – deal and doubts

A deal for a third Greek bailout was reached on last week and eventually approved by the parliament in Athens. Germany expressed “skepticism” about the agreement and preferred another bridge loan.

However, on Friday Germany agreed to go along. Greece will get its first disbursement this month, to pay the ECB. A first review is planned for October.

The German parliament convenes on Wednesday, August 19th, to approve it. As with Greece, there is no doubt that the a wide approval will be seen, but the number of “rebels” from Angela Merkel’s party will be closely watched.

Political situation in Greece

In Greece, the lack of support for Alexis Tsipras from his own SYRIZA party warrants a confidence vote and probably a dissolution of parliament towards elections in September or October.

The opposition parties supported him only regarding the deal but will not join a coalition. Tsipras is personally widely popular with the public, but his policies were certainly controversial given his election promises.

Greece’s creditors have always stressed they wanted “ownership of the program”. The deal is considered by many as unrealistic, and only a punishment, will be even harder to implement if the government doesn’t command a majority.

IMF participation

As always, the elephant in the room is Greece’s debt. Everybody knows it is unsustainable with the IMF saying it most loudly. At the moment, the IMF is not part of the agreement. It wants debt relief.

Germany wants IMF participation but does not want debt relief. Something has to give.

In the meantime, the sides have kicked the can down the road to October. The crisis is never too far away.

Chinese yuan devaluation

The financial world followed the setting of the yuan reference rate last week: the devaluation triggered worries about a currency war, a global slowdown and China exporting deflation.

The move, which initially boosted the US dollar also against other currencies, came to haunt the greenback. The markets changed their minds about the impact: with a weaker yuan, the Fed could wait before hiking the rates.

With two consecutive days of stability, we are no longer in “crisis mode”. The stability helps convince concerned markets that the depreciation was a “one off” and not a huge move.

EUR/USD

The euro has been acting recently as a funding currency for riskier assets outside the euro-zone. So, in times of trouble, money came back to the old continent. But if we have some calm on both the Greek and Chinese fronts, the euro is in less demand.

This explains the recent move lower.

More: Euro Holding Up Better Than Some; What’s Next? – CIBC

Here is how it looks on the chart:

EURUSD August 17 2015 technical chart for currency trading forex euro dollar

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

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